Omnicom revenues drop, firms reassess expenses

NEW YORK: The industry's largest holding company, Omnicom Group, was the first to deliver its Q4 results last week, and it showed a 10.2% decline in PR revenues to about $305 million.

NEW YORK: The industry's largest holding company, Omnicom Group, was the first to deliver its Q4 results last week, and it showed a 10.2% decline in PR revenues to about $305 million. In comparison, ad revenues, which make up the bulk of its earnings, dropped 7.6% in Q4, which ended December 31.

During the earnings call, Omnicom EVP and CFO Randall Weisenburger said PR was “continuing to experience general softness.” PR revenues for all of 2008 decreased less than half a percent to about $1.3 billion, while ad revenues grew about 5%.

Companywide, Omnicom's total 2008 revenues were $13.36 billion, earning a net income of $1 billion, a 2.5% income increase from last year. Omnicom CEO John Wren said during the earnings call it was “the most challenging quarter the company has faced since 1992.”

A number of executives at Omnicom's PR firms acknowledged that they are tightening up on expenditures, but largely denied significant losses or staff layoffs.

Dave Senay, CEO of Fleishman, declined to outline specific financials, citing Sarbanes-Oxley, but said the agency had “outperformed the sector within Omnicom, in both annual and quarterly results.” Despite a “challenging year with respect to budgets,” Senay said the firm “held steady” in 2008.

“The real issue now is future level for client spending,” he added.

Porter Novelli CEO Gary Stockman said the firm had “worked to bring our expenses in line with revenues,” but it is also “making targeted investments that matter to our clients... like digital.” He said although the company has made some “staffing adjustments,” it continues to hire and has not cut bonuses or frozen salaries.

Boston-based Cone increased its revenues and profitability in 2008, according to its CEO and president Jens Bang. However, Bang noted some softening in the fourth quarter that resulted in “minor” layoffs.

“[These layoffs] were in line with projections about what we think '09 will look like,” he said, adding that the company had cut back more on discretionary expenditures, like conference attendance and travel.

Stockman, too, said PN was acting cautiously about “how and where we spend money, including travel and meetings.” And Ketchum's Marv Gellman, VP and director of media relations, said in a statement that the agency is “keeping discretionary spending and overhead down, and making minor adjustments to staffing... [but] continuing to make selective hires and investments.”

Peter Stabler, an ad analyst at Credit Suisse, called Omnicom's earnings a good barometer for other holding companies, like WPP, which will disclose earnings March 6.

“The PR numbers were bad,” he said, but noted that Omnicom has “cost cut aggressively.” Stabler also suggested that agencies will face continued challenges.

“It's not just clients cutting back projects, it's clients negotiating more aggressive fees,” he said. “That's a question mark I have.”

A day after Omnicom released its earnings, Publicis Groupe reported almost 4% organic growth for the year, but 2008 revenues were flat, totaling $6.1 billion, a 0.7% rise from a year ago. Net income fell from about $584.2 million a year ago to about $577.8 million in 2008.

Mark Hass, CEO of Publicis' MS&L, said the firm has “modest expectations” for the year, and will use the economic crunch as a chance to add talent rather than cut it.

“We should be able to convince [clients] that to maintain... visibility in the marketplace, they have to spend more in PR because it's the only tool they have left,” he added.

Includes additional reporting by Tonya Garcia.

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